Gold stabilizes; focus on the Italian election and the U.S. sequestration

The U.S. Comex gold futures stabilized on Thursday and rose 0.27% to around $1,583 upon Asia's Friday open. The gold futures plunged 4.34% in the previous five trading days, with the prices reaching a recent low of $1,554.30 during Asia's Thursday open. Rumors of forced selling by a hedge fund may have aggravated the decline in gold prices. The CRB Commodity Index fell in three consecutive weeks by 3.91%. This week, the S&P 500 index dropped 1.14% while the Euro Stoxx 50 index dropped 1.36%. The Dollar Index surged 1.09 %this week.

Lively Debate Within the U.S. Fed

The release of the January FOMC minutes on Wednesday brought about gold selling. The market particularly focused on the governors' discussions of the risks and costs due to additional asset purchases as well as the problems such additional purchases would pose for both the QE exit strategy and financial stability. The debate was quite balanced between the early termination of the QE before the thresholds have been breached and the risks caused by a premature stimulus removal. On global recovery, the governors actually thought that no single country can help to lift the pace of global recovery, suggesting that the worry about global growth risks is still very much alive. Note that the Fed Board and the Chairman still hold the key to monetary policy despite the lively debate within the governors. Realistically, the pace of the asset purchases will remain unchanged for the foreseeable future.

More Bearish Economic News

The E17 PMI composite fell from 48.6 in January to 47.3 in February, leading to a fall in the Euro/Dollar. The February U.S. Philadelphia manufacturing index fell much more than expected to minus 12.5 from minus 5.8 in the previous month. With Chinese housing prices rising in most cities for three consecutive months, more analysts are expecting some tightening by the Chinese government this year.

Loads of Events to Watch Next Week

Important events to watch will include the Italian election on Feb. 24-25, the February China flash manufacturing PMI on Feb. 25, Ben Bernanke's testimony on Feb. 26, the February Germany unemployment change on Feb. 28, and the start of the Single Supervisory Mechanism framework for EU banks, the February U.S. ISM manufacturing index as well as the automatic spending cuts in the U.S. on March 1.